Tips for Controlling Labor Costs in Your Business

For service businesses, labor costs are the largest expenses incurred in business operations. For many other types of businesses, the cost of labor is a large component of overall costs.

Controlling labor costs so they remain in line with what’s best for the organization is an important management function—and that’s why we’re here to help!

Here are several ways to control or reduce labor costs in your business.

1. Encourage Employee Retention

If well-trained employees leave, you likely will have to replace them with inexperienced employees that need training. This results in a temporary loss of productivity. Some turnover can be good, but if turnover is too high, it can result in increased labor costs.

2. Automate Tasks

Save labor by automating any repetitive tasks employees are still performing manually. While some automation might require extensive capital outlays, many systems can be implemented that are inexpensive and provide an immediate return on investment.

3. Streamline Processes

Are you operating your business most efficiently? Or are employees still performing outdated tasks that have lost their meaning over time?

One place to look is the interface between departments. Is your sales team duplicating marketing’s efforts? Is customer service answering the same question without communicating to operations how it should be permanently fixed? Enhancing communications among employees throughout the company can cut down on labor costs.

4. Train Employees

Make sure your employees have the training to do their jobs effectively. If they are using systems and other tools, make sure they have completed courses or certifications.

5. Provide the Right Tools for the Job

Do employees have the tools they need to do the job well? If you’re giving them an abacus instead of the latest version of Microsoft Excel®, you can’t expect them to perform their best. This is an extreme example, but the importance of having the right tools can’t be overstated.

6. Cross-Train Employees

If an employee is out sick, will a customer request sit around until that employee is back? Check to see if your employees can easily pick up a colleague’s work and fill in if their team member is out.

7. Optimize Employee Schedules

In many industries, including restaurant and retail, employee scheduling can make the difference between profit and loss. Software can help you determine how many employees you need and at what times. Ensuring employees know when to come in and what to focus on when they clock in will go a long way toward increasing productivity.

In some cases, a shorter work week is a possibility that can drive lower labor costs.

8. Outsource

Outsourcing may be cheaper than using employees on certain tasks, especially if you have tasks that require specialized knowledge or skills, or you might not need a full-time person. Outsourcing can also help you determine how long a task will take so you can plan better if you do decide to bring the activity in house.

9. Review Compensation

Compare your company’s current salaries to the going market rate for salaries in your industry. Are your salaries in line? Adjust accordingly for future hires.

You can also consider different pay structures, such as commission-based, to better match performance to labor costs. Bonuses paid out in lieu of annual raises allow you to better manage accumulated pay raises in the case of long-term employees.

10. Review Benefits

Employees love perks, but these perks can be costly. If necessary, this is an area in which expenses can be cut to reduce costs. This can include reviewing time-off policies, employer’s percentage share of 401(k) plan contributions, and additional health care coverage such as dental and vision.

Hiring part-time employees that are ineligible for benefits can also reduce labor costs.

11. Cut Overtime Pay

If overtime pay is so high that you need to increase your headcount, then it’s too high. On the other hand, some overtime pay is fine if it avoids hiring a headcount you don’t fully need.

12. Incentivize Workers

Try increasing productivity and results with incentives built into your compensation plan.

13. Provide Remote Work Options

Studies show remote workers are more productive. Plus, overhead expenses such as rent, furniture, and utilities will plummet, saving expenses overall.

14. Hire Smart from the Start

The saying is “Hire slow, fire fast.” Finding the right workers for your business is an art form. Interview, test, check background and references, and hire employees on a trial basis to be sure you have the best workers.

15. Maintain a Safe Working Environment

Follow all of the regulatory requirements, but use common sense as well to ensure you have a safe workplace for employees.

16. Understand the Accounting Side of Labor Costs

If you pay an employee $15 per hour, understand that your labor cost will be far more than $15. These are the things not included in that $15:

Employer’s share of payroll taxes (Social Security and Medicare)
Vacation and time off
Paid holidays
Workers compensation insurance
Unemployment insurance (federal and state)
Health care
401(k) matches
Company picnics and events
The cost of all other employee perks

The cost of onboarding and retaining an employee includes even more than labor costs and should allocate these expenses:

Computer equipment and software applications
Rent, utilities, furniture, parking spaces, building repair
Employer-paid meals, snacks, and coffee
Training
Events and travel
Meeting time and expenses (this deserves to be listed separately)

Employees make your business possible, but to maintain a business profit, labor costs must be kept in line. Try these ideas to help your team be more productive and keep your labor costs under control.

Looking for help tracking and reducing your labor costs? Reach out and let’s have a conversation!

< Older Post

Newer Post >

Our Latest Insight

Business Growth Strategies: How to Finance Growth Without Destroying Cash Flow

By Alisa McCabe • October 28, 2025

Evaluate Internal Cash Flow to Guide Business Growth Strategies Before pursuing any expansion, leaders must understand their current financial position. This means analyzing revenue patterns, expense categories, and liquidity levels to determine whether operations can genuinely support new initiatives. Growth that compromises your ability to meet payroll, vendor payments, or operational costs isn't growth at all. A thorough internal cash flow review exposes both strengths and vulnerabilities. Are receivables stretching beyond 60 days? Have fixed expenses climbed faster than revenue? Do seasonal fluctuations create liquidity gaps? Identifying these issues early allows you to address weaknesses before they become crises. Rolling cash flow forecasts provide the forward visibility essential for confident decision-making. By updating projections monthly or quarterly, you can anticipate how expansion initiatives will impact liquidity and adjust accordingly. Explore Financing Options That Support Stability Once you've assessed internal resources, external financing can bridge the gap between current capacity and growth ambitions. The key is selecting options that provide flexibility without creating unsustainable obligations. Common financing approaches include: Lines of credit: Flexible funding for short-term needs and working capital management. Term loans: Structured repayment over time to fund larger, long-term growth initiatives. Revolving facilities: Ongoing access to funds with repayment cycles that match operational needs. Strategic partnerships: Shared funding arrangements that reduce risk and broaden opportunity. Each option carries distinct implications. Short-term credit may solve immediate needs, but can strain cash flow if repayment schedules are aggressive. Term loans spread costs over time but require confidence that future revenue will support payments. Evaluate not just the cost but how each structure aligns with your revenue cycle and growth timeline. Prioritize Investments With Measurable Returns Not all opportunities deserve equal attention. Effective business growth strategies focus resources on initiatives that deliver clear, quantifiable returns such as increased revenue, operational efficiency gains, or expanded market reach. Financial modeling helps compare potential outcomes and identify the highest-value investments. Analyze payback periods, contribution margins, and scalability to ensure capital flows toward opportunities that strengthen rather than strain your business. Consider phasing major projects to test results, refine approaches, and scale what works without overcommitting resources upfront. Implement Scalable Processes to Prevent Bottlenecks Rapid expansion exposes operational weaknesses. Without scalable system s, growth creates bottlenecks in invoicing, inventory management, fulfillment, or reporting that directly compromise liquidity and customer satisfaction. Automation plays a critical role in scaling efficiently. Automated invoicing accelerates collections and reduces errors. Digital inventory systems prevent stock outs and overordering. Integrated reporting platforms provide real-time visibility into performance metrics. However, technology alone isn't enough. Training teams, refining communication channels, and establishing clear protocols ensure people and processes evolve together to support sustainable expansion. Monitor Key Indicators to Stay Ahead of Problems Business growth strategies succeed only when leaders actively track performance. Operating cash flow, working capital ratio, and debt service coverage reveal whether expansion aligns with financial health. Regular monitoring enables you to spot warning signs early and course-correct before minor issues escalate into major problems. Real-time dashboards and reporting platforms make this easier. Monthly or quarterly reviews of both financial and operational metrics allow timely adjustments. But don't focus solely on financial indicators. Customer retention rates, operational efficiency, and team capacity provide equally important signals about whether growth is sustainable or simply inflating revenue at the expense of long-term stability. Growth Should Strengthen, Not Strain, Your Business Successful expansion isn't about chasing every opportunity but about pursuing the right ones at the right time. By carefully evaluating cash flow, making thoughtful financing choices, investing strategically, building scalable systems, and monitoring performance consistently, you ensure that growth builds organizational strength rather than exposing dangerous vulnerabilities. First Steps Financial partners with you to design business growth strategies that balance ambition with financial discipline. Together, we analyze your position, identify sustainable opportunities, and implement approaches that expand your organization while protecting liquidity. Connect with our team to build a growth plan rooted in both confidence and financial resilience.

10 Financial KPIs Every Small Business Owner Should Track

By Alisa McCabe • October 16, 2025

1. Cash Flow Cash flow is the lifeblood of any small business. This metric shows you exactly how much money is flowing in and out of your business over a specific period. Unlike profit, which can be theoretical, cash flow represents real money you can actually spend. Positive cash flow means you're bringing in more than you're spending, while negative cash flow signals potential trouble ahead. Monitor both your operating cash flow (from daily operations) and free cash flow (what's left after necessary investments) to get a complete picture of your financial health. 2. Gross Profit Margin Your gross profit margin reveals how efficiently you're producing and delivering your products or services. A healthy gross profit margin indicates that you are pricing your offerings appropriately and managing production costs effectively. Financial KPIs like gross profit margin help you understand whether your core business model is fundamentally sound before considering overhead expenses. 3. Net Profit Margin While gross profit margin focuses on direct costs, net profit margin gives you the complete financial story. This metric shows what percentage of your revenue remains after all expenses, including overhead, taxes, and interest payments. It's the ultimate measure of your business's profitability and efficiency. A declining net profit margin might indicate rising costs, pricing pressure, or operational inefficiencies that need immediate attention. 4. Customer Acquisition Cost (CAC) Understanding how much you spend to acquire each new customer is crucial for sustainable growth. Customer Acquisition Cost includes all marketing and sales expenses divided by the number of new customers gained in that period. This Financial KPI helps you evaluate which marketing channels deliver the best return on investment and ensures you're not spending more to acquire customers than they're worth to your business. 5. Customer Lifetime Value (CLV) Customer Lifetime Value predicts the total revenue you can expect from a customer throughout your entire relationship. Financial KPIs like CAC and CLV help you make informed decisions about how much to invest in customer acquisition and retention. When your CLV significantly exceeds your CAC, you have a healthy, scalable business model. Focus on increasing CLV through improved customer service, upselling, and building long-term relationships. 6. Accounts Receivable Turnover This metric measures how efficiently you collect money owed to your business. Calculate it by dividing your net credit sales by average accounts receivable. A higher turnover ratio indicates you're collecting payments quickly, which improves cash flow. If this ratio is declining, you might need to tighten credit policies, improve collection processes, or reconsider which customers you extend credit terms to. 7. Inventory Turnover Financial KPIs for businesses that carry inventory, show how quickly you're selling and replacing stock. A high inventory turnover typically indicates strong sales and efficient inventory management, while a low turnover might signal excess stock, poor demand forecasting, or products that aren't resonating with customers. Strike the right balance to avoid stockouts while minimizing carrying costs . 8. Debt-to-Equity Ratio This ratio compares your total debt to your business equity, providing insight into your financial leverage and risk profile. A high debt-to-equity ratio might indicate heavy reliance on borrowed money, which increases financial risk but can also accelerate growth. Understanding this ratio helps you make informed decisions about financing options and manage your capital structure effectively. 9. Working Capital Ratio Working capital measures your ability to meet short-term obligations and is calculated by dividing current assets by current liabilities. A ratio above 1.0 indicates you have sufficient liquid assets to cover immediate debts. This Financial KPI is vital for managing seasonal fluctuations and unexpected expenses that could otherwise disrupt your operations. 10. Revenue Growth Rate Track how your revenue is growing month-over-month, quarter-over-quarter, and year-over-year. This metric helps you identify trends, evaluate the effectiveness of growth strategies, and make realistic projections for the future. Consistent revenue growth indicates a healthy business trajectory, while declining growth rates signal the need for strategic adjustments. Take Control of Your Financial Future Mastering these Financial KPIs transforms you from a business owner who's simply hoping for success into one who's strategically driving toward it. However, implementing robust financial tracking systems and interpreting these metrics correctly can feel overwhelming when you're already juggling countless other responsibilities. That's where expert guidance makes all the difference. At First Steps Financial, we specialize in helping small business owners like you establish comprehensive financial monitoring systems, interpret key metrics, and translate data into actionable strategies. Our team understands the unique challenges you face and can help you build the financial foundation necessary for sustainable growth. Don't let uncertainty cloud your business decisions any longer. Let’s connect and discuss how proper financial tracking can accelerate your path to success.

Pricing Strategies That Actually Increase Profit Margins

By Alisa McCabe • October 3, 2025

Understanding Cost, Value, and Competitive Pricing Strategies Let’s start by exploring the fundamental relationship between cost structure, perceived value, and market positioning. Understanding these strategies will help you develop pricing strategies that maximize profitability while remaining competitive. These core concepts enable you to make informed pricing decisions that align with both your financial objectives and customer expectations. Cost-based pricing ensures each product or service covers expenses while providing a reliable baseline profit margin. Relying exclusively on cost plus markup may miss opportunities to generate additional revenue strategically. Comparing internal costs against industry benchmarks allows pricing that stays competitive without reducing profitability. Value-based pricing emphasizes the benefits customers perceive rather than only production costs. Customers often pay higher prices when pricing accurately reflects the value and benefits they receive. Ongoing assessment of customer preferences and market shifts is essential to keeping pricing effective and sustainable. Competitive pricing evaluates your offerings relative to competitors’ market positions and pricing structures. Analyzing competitor prices uncovers opportunities for differentiation while protecting overall profit margins. Leveraging Tiered Pricing and Bundling Tiered pricing encourages customers to select higher-value options by presenting multiple pricing levels. Offering basic, standard, and premium tiers motivates clients to upgrade without feeling pressured. The highest tier should provide clear, tangible benefits that justify the increased cost and value. Bundling complementary products or services increases average purchase value while reinforcing perceived benefits. Grouped offerings often encourage additional spending and enhance overall customer satisfaction. Financial modeling helps determine which bundles maximize profit margins effectively and support strategic objectives. Key Takeaways: Offer multiple pricing tiers to guide customers toward higher-value options Bundle complementary products or services to increase average transaction value Use financial modeling to identify bundles that improve profit margins Monitoring the performance of these tiers and bundles provides actionable insights for improvement. By tracking revenue, conversion rates, and customer responses, you can make data-driven decisions to refine strategic pricing approaches. Applying Psychological Pricing Strategies Psychological pricing can subtly influence customer decisions while maintaining product value. Pricing strategies that set items just below round numbers, such as $49 instead of $50, increase perceived affordability. This strategy leverages human behavior rather than relying on direct cost adjustments or discounts alone. Anchoring high-priced options alongside standard offerings nudges customers toward mid-tier selections. Strategic placement encourages larger purchases and guides customers to perceive higher value within their choices. By offering comparative displays, you enhance the buyer’s decision-making confidence and the effectiveness of your pricing approach. Key Techniques: Price just below round numbers to increase perceived affordability without reducing profits Anchor high-priced options alongside standard offerings to encourage mid-tier purchases Use price framing and comparisons to highlight perceived savings and enhance customer value Highlight limited availability or urgency to subtly motivate quicker purchase decisions Employ decoy pricing to make certain options appear more attractive and valuable Assessing Market Position and Competitor Pricing Regularly reviewing competitor pricing uncovers gaps and areas where your offerings can increase perceived value. Understanding your market position informs decisions regarding strategic price adjustments, promotional offers, and sustainable margin protection. It also helps you ensure that your products or services remain appealing to customers. Competitor monitoring is, however, not a once-and-done. To support long-term financial stability and growth strategies, you need to continually monitor market trends and emerging competitors. Testing and Iterating for Profitability Testing different price points, packages, or promotional offers helps identify strategies that improve profitability. By executing small-scale pricing experiments, you can gain valuable insights without risking overall revenue or customer satisfaction during implementation. By conducting financial modeling and scenario analysis, you can forecast the impact of pricing changes before full implementation. Continuous iteration creates a dynamic pricing framework that responds to evolving market conditions and customer behavior. This adaptive approach is vital to maintain consumer trust and satisfaction while optimizing profits. Are You Leaving Revenue on the Table? Pricing decisions directly influence revenue, customer perception, and long-term growth potential. At First Steps Financial, we deliver tailored consulting solutions designed specifically for your business needs and goals. Our experts can help you evaluate your business strategies through financial analysis and forecasting. With a results-driven approach, we continually monitor outcomes and make adjustments to create measurable impact. With First Steps Financial, you’re not just getting a consultant; you’re gaining a trusted ally in achieving your goals! Let’s connect.